Medical Loss Ratio and Value-Based Care: A Path to Savings

Huma Farman Khan

Huma Farman Khan

Director of Data Management-Population Health/Value Based Care Analytics

Hi Everyone,

In this article, I have tried to explore the concept of the Medical Loss Ratio (MLR), a critical measure in the health insurance industry, and how Value-Based Care (VBC) can help improve it. We will also delve into some of the latest statistics and references related to these topics. I have also tried to provide examples of how VBC can lead to significant savings in healthcare costs.

What is Medical Loss Ratio (MLR)?

Medical Loss Ratio (MLR) is a measure used in the health insurance industry to determine the percentage of premium dollars that an insurance company spends on healthcare and healthcare improvement activities, as opposed to administrative costs, marketing, and profits. The Affordable Care Act (ACA) mandates that health insurers must spend at least 80% (for individual or small group insurers) or 85% (for large group insurers) of premium dollars on healthcare and healthcare improvement. If an insurer does not meet these requirements, they must provide rebates to policyholders.

Value-Based Care (VBC)

Value-Based Care (VBC) is a healthcare delivery model in which providers, including hospitals and physicians, are paid based on patient health outcomes. Under value-based care agreements, providers are rewarded for helping patients improve their health, reduce the effects and incidence of chronic disease, and live healthier lives in an evidence-based way.

How Can VBC Help Improve MLR and Save Dollars?

Value-Based Care can help improve the Medical Loss Ratio and lead to significant savings in healthcare costs in several ways:

1.    Improved Patient Outcomes: By focusing on patient outcomes, VBC encourages preventative care and management of chronic conditions, which can lead to lower healthcare costs in the long run. For example, a study published in the Journal of the American Medical Association found that a value-based care model implemented by Blue Cross Blue Shield of Massachusetts was associated with a slower increase in medical spending on claims.

2.    Efficiency and Cost Reduction: VBC models incentivize healthcare providers to eliminate unnecessary procedures, tests, and hospital stays, which can significantly reduce costs. For instance, according to a report by Humana, their value-based care programs saved approximately $4 billion in healthcare costs in 2019.

3.    Preventive Care: VBC models often emphasize preventive care, which can detect health issues earlier before they become serious and expensive to treat. Preventive care can lead to significant savings. According to the Centers for Disease Control and Prevention (CDC), if all the U.S. population were to receive recommended clinical preventive care, it could save over $3.7 billion in healthcare costs.

4.    Coordination of Care: VBC encourages coordination of care, which can lead to improved patient experience and outcomes, and reduced costs. A study published in the American Journal of Managed Care found that care coordination programs could reduce hospital admissions by 8.6%, leading to a potential cost savings of $240 per patient per year.

By reducing the overall cost of care and improving patient health outcomes, Value-Based Care can help insurance companies increase the percentage of premium dollars spent on actual care, thereby improving their Medical Loss Ratio and saving dollars.

Examples of VBC Saving Dollars

Let’s look at some real-world examples of how Value-Based Care has led to significant savings:

1.    Blue Cross Blue Shield of Massachusetts’ Alternative Quality Contract (AQC): A study published in the New England Journal of Medicine found that the AQC system led to a 1.9% decrease in spending for patients enrolled in the contract, compared to similar patients not in the contract. The savings were driven by providers shifting procedures, tests, and imaging to facilities with lower fees.

2.    UnitedHealthcare’s Value-Based Programs: In 2015, UnitedHealthcare reported that care providers in its value-based programs delivered quality improvements and cost savings, including 25 million in savings from 6.4 million fewer days spent in the hospital.

3.    Humana’s Value-Based Care Program: According to Humana’s 2019 Value-Based Care Report, total healthcare costs for members affiliated with physicians in Humana’s value-based arrangements were 20% lower than the original fee-for-service Medicare. This resulted in approximately $4 billion in savings for 2019.

These examples illustrate how Value-Based Care can lead to significant savings in healthcare costs, thereby helping to improve the Medical Loss Ratio.


The Medical Loss Ratio (MLR) is a critical measure in the health insurance industry that can be significantly improved through the implementation of Value-Based Care (VBC). By focusing on patient outcomes, promoting efficiency, emphasizing preventive care, and encouraging coordination of care, VBC can lead to significant savings in healthcare costs. These savings can help insurance companies increase the percentage of premium dollars spent on actual care, thereby improving their MLR and contributing to the overall goal of providing high-quality, affordable healthcare.

As the healthcare industry continues to evolve, the adoption of VBC models will likely become increasingly important. By understanding the potential of VBC to improve MLR and save dollars, stakeholders can make more informed decisions about how to best deliver and pay for care.


Song, Z., Rose, S., Safran, D. G., Landon, B. E., Day, M. P., & Chernow, M. E. (2014). Changes in Health Care Spending and Quality 4 Years into Global Payment. New England Journal of Medicine, 371(18), 1704–1714. Link

UnitedHealthcare. (2015). Value-Based Care Report. Link

Humana. (2019). Value-Based Care Report. Link

Centers for Disease Control and Prevention. (2017). Clinical Preventive Services. Link

Peikes, D., Chen, A., Schore, J., & Brown, R. (2009). Effects of Care Coordination on Hospitalization, Quality of Care, and Health Care Expenditures Among Medicare Beneficiaries. JAMA, 301(6), 603–618. Link